Daily Market Commentary - GCI Financial

The euro appreciated sharply vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5965 level and was supported around the US$ 1.5755 level. The common currency established another new lifetime high on account of eurozone economic data that were released and increasing speculation of additional monetary easing from the Federal Reserve. It was reported that U.S. March industrial production rose 0.3% m/m and was off 0.5% q/q while capacity utilization printed at 80.5%. Also, U.S. March headline inflation was up 0.3% m/m and 4.0% y/y. These data evidence the difficult position the Fed is in having to manage a slowing economy, credit market dislocations, and ailing housing market simultaneously with ongoing elevated inflationary pressures. Other data released in the U.S. today saw March building permits fall 5.8% to 927,000 while March housing starts were off 11.9% to 947,000 units. In eurozone news, EMU-15 March consumer prices were up 3.6% y/y from 3.3% y/y in February, significantly above the ECB’s ceiling target rate of 2.0%. On core basis, inflation was up 2.0% in March from 1.8% in February. The common currency also moved higher on news that U.S. investment banking giant Merrill Lunch will announce a Q1 loss of US$ 6 billion+ tomorrow. Traders are also shorting dollars ahead of additional earnings reports from JPMorgan Chase and Wells Fargo. Germany’s economic institutes see 2008 GDP growth around 1.8% while German March final CPI was up 0.5% m/m and 3.1% y/y. European Central Bank member Garganas today said “The short-term outlook (in the euro zone) for inflation isn't satisfactory. Inflation is likely to remain at elevated levels for the coming months and is likely to moderate to the 2% level only very gradually. The balance of risks to the short-term global outlook remains tilted toward the downside. Meanwhile, inflation remains strong mainly because of oil and food prices. In this environment, the greatest contribution that central banks can make is the firm anchoring of medium- to long-term inflation expectations.” ECB member Tumpel-Gugerell was similarly hawkish saying “Looking ahead, the annual harmonized index of consumer price inflation rate is likely to remain significantly above 2% in the coming months, moderating only gradually over the course of 2008.” Euro bids are cited around the US$ 1.5345 level.

JPN/CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥100.80 level and was capped around the ¥101.90 level. Bank of Japan Governor Shirakawa talked about the yen saying “Of course, foreign exchange moves have an impact on various sectors of the economy. I will keep closely monitoring how (the recent dollar/yen moves) will affect the overall economy. In principle, foreign exchange levels should reflect economic fundamentals and I won't comment on daily moves or levels. But just to recap, the recent trend is that the yen has been strengthening versus the dollar, but not necessarily against the euro.” He also testified today that the economy is unlikely to face a severe downturn and will return to its trend growth rate. Data released in Japan today saw March revised machine tool orders up 3.3% y/y. The Nikkei 225 stock index climbed 1.20% to close at ¥13,146.13. Dollar offers are cited around the ¥103.65 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥161.85 level and was supported around the ¥160.40 level. The British pound and Swiss franc appreciated vis-à-vis the yen as the crosses tested offers around the ¥200.75 and ¥101.60 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9918 in the over-the-counter market, down from CNY 6.9925. The Chinese State Council reported China will continue to tighten its monetary policy with “prudent” measures. Data released in China today saw Q1 GDP growth of 10.6% y/y while inflation printed at 8.0% in Q1 with March inflation at 8.3%.

STERLING

The British pound gained significant ground vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9805 level and was supported around the $1.9600 figure. Sterling gained ground on news that Bank of England may be finalizing an arrangement to purchase problem mortgage loans that remain on banks’ balance sheets. The central bank plan could involve swapping U.K. mortgage-backed securities for government bonds for one-to-three years. It was reported that U.K. March unemployment fell for the eighteenth consecutive month in March, down 1,200 to 2.5%. Cable bids are cited around the US$ 1.9605/ 1.9505 levels. The euro gained ground vis-à-vis the British pound as the single currency tested offers around the ₤0.8090 level and was supported around the ₤0.8025 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9940 level and was capped around the CHF 1.0110 level. Technically, today’s intraday high and low were right around the 23.6% and 50.0% retracements of the move from CHF 0.9645 to CHF 1.0250. U.S. dollar offers are cited around the CHF 1.0375 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5950 level while the British pound weakened vis-à-vis the Swiss franc and tested bids around the CHF 1.9645 level.

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